Money Management

Keep Your Emergency Fund Intact

July 22, 2018 By Twila VanLeer

Smart personal finance management always includes an emergency fund to tide you over an unexpected expense. So whether you are rebuilding after just such an emergency (medical expense, car or home repairs or other sudden cash drain) or just starting a fund, there are some practical ideas to keep you on track.

Savings is, like any other use of your income, a state of mind. The rule here is to pay yourself first. Don’t resolve to put whatever is left after expenses are met into a savings account. Make it the top priority. Developing that habit goes a long way toward helping you to resist the temptation to delay starting and maintaining a savings cache.

The amount you commit to an emergency fund is not as important as your commitment to do it faithfully. Include savings as an integral part of your family budget. Set up an automatic deposit that will put savings into your account a few days after your paycheck is deposited.

Whenever you have a little windfall – tax refund, gift, overtime pay, etc. – put it into savings. Each time you pay off a debt or receive a raise, think of savings first.

When you are job hunting, give preference to employers who can offer the best benefits such as health insurance, matching retirement savings plans or travel reimbursement. Each perk that comes with the job saves you the money it would have cost you and helps build your savings.

Put your emergency savings into a separate account. Look for an account that offers interest, if possible.

If you experience a financial emergency, of course use the money you have set aside for these occasions. Just don’t delay to begin building it again as soon as possible.

Your ultimate goal should be to have three to six months of savings as a cushion against money emergencies, including the loss of your job.

Feds Raise Interest Rates, Promise More

June 19, 2018 By Twila VanLeer

The Federal Reserve raised the prime interest rate recently by just a small percentage, but enough to raise expectations that Americans will face higher borrowing costs for homes and other big-ticket items., including credit card costs.

The benchmark rate now stands at 1.75 to 2 percent. It’s the first time the rate has reached that level since 2008, when the economy tanked while the feds were hoping to get rates down to zero.

The recent action indicates the Fed has confidence in the current economy and that it has enough strength to accommodate a slight increase in borrowing costs. The increase is evidence that recovery from the 2008 recession is strong.

The current increase is the second this year and the seventh since the recession.

While announcing the increase, the federal agency also indicated that two other jumps in the prime rate are likely this year.

When Your Term Deposit Matures

May 10, 2018 By Twila VanLeer

Term deposit accounts are among the low-maintenance savings options. You deposit the money and then sit back and wait out the specific time you have chosen – six months to five years in general — while the interest builds. The interest tends to be better than in a regular savings account, making term deposit one of the best ways to diversify your long-term investments.

But when the maturity date rolls around, there are several options you might consider to continue the benefit of your term deposit:

Take no action and let the fund roll over automatically. Doing this will maintain the account at the current interest rate. Review interest rates before making the decision. Obviously, if rates are trending downward, you might want to consider another savings scheme.

Cash out the interest and roll over the initial investment. This approach allows you to balance spending and savings and maintains the investment to earn more interest.

Increase or reduce the investment. If you have more money to invest or need some of the term deposit money for some other purpose, make that analysis the guide to what you do as the term deposit matures. Take into consideration your personal circumstances and your long-term investment goals before acting.

Adjust the term. If you went with a longer period for the initial term deposit, but feel that your current financial status might benefit from a shorter term, re-deposit the money at a shorter term, say six months to a year. Some institutions allow you to make additional contributions to the account for the duration of the term. Flexibility is what allows you to make the best savings decisions over time.

Cash out the account. If you had a specific savings goal in mind when you deposited your money in a term account, such as home repairs or a new car, simply cash out the entire amount. Restart a new account when you are ready and have a new objective in mind.

Know Your Credit Score

April 5, 2018 By Twila VanLeer

Your credit score is an essential facet of your personal finances. Even so, a great number of people don’t ever know what their credit score is or how to affect it in their favor.

It makes a difference. Your credit score is one of the factors that lenders look at when they consider whether to loan you money for a home or other big-ticket item. A lower score could mean a higher interest rate or otherwise affect the mortgage agreement. Your goal should be to have a score above 760.

So find out what your score is and then apply these five steps to upgrade:

• Know your risks. You can learn what your current credit report contains by contacting one of the three main credit reporting agencies, TransUnion, Equifax and Experian. Once a year they are obligated to provide a free report. It won’t include your overall score and you usually will have to pay a fee to see that bottom line. Usually, the score will come with a list of risk factors. Study them as a starting point for improvement. There can be as many as 300 risk factors. If you choose not to pay one of the reporting agencies for a score, many credit card companies will include it on statements and there are third-party websites that provide a simulated score. They include credit.com and creditkarma. Their scores may not exactly match those of the reporting companies, but it is close enough to set you on a correction course.

• Pay your bills on time and every time. The biggest factor in determining your credit score is how faithfully you pay your bills. Obviously, no potential lender wants to hand its resources to someone who has a patchy record of repaying. Even a few days late matter. A single missed payment can drop your score by 100 to 300 points. Start by refusing to allow yourself to add to your debt. Charge only what you can afford to pay off every month in full.

• Manage the debt you have. Keep your balances low to build your credit score. Debt utilization – how much of your available credit you actually use is an important part of how you score. Your balance should never be more than 30 percent of the credit limit on any single charge card or on the total of all your cards. If your balance now exceeds that goal, plan to get them paid off as soon as possible. Add as much money as possible on each payment. Decide if you want to concentrate on the smallest balances first or whittle away at those with the highest interest.

• If you don’t have a credit card, open one. A wallet full of credit cards isn’t necessary, but one or two, carefully managed, can help you establish a good score. Don’t just apply without a plan. Know how much credit you need and how you plan to repay it. If you opt not to have a credit card, open a credit account and faithfully pay it. You need some evidence that will get back to the credit reporters to enhance your score.

• Be patient. Good credit is not built in a day. It may take a few months of faithfully paying bills, keeping credit lines tidy and controlling your spending to produce the results you are looking for. But it will all be worth it when you face a mortgage lender across the desk or have other credit requests to make.

Buying A Home? Check This List

March 30, 2018 By Twila VanLeer

Buying a home, for many Americans, is like slipping into a foreign country. Myths about mortgages abound. Go into the process as well prepared as you can by considering these facts:

• Perfect credit is required. Not so. Having a higher credit score is helpful and may get you a lower interest rate, but it is not the only factor a lender considers when you come to borrow money for your home. If you can show that you are able to repay a loan you probably can swing the loan if your credit score is above 670.

• Rising interest will prevent your owning a home. Rising interest rates do, as a matter of fact, affect how much of a loan you can qualify for and the kind of loan you might be offered, but it doesn’t mean you are out of the market. CoreLogic projections show that an 0.85 percent increase in interest will cost the buyer another $100 per month. That may seem like a lot, but it is less than the period of all-time high interest rates in the early 1980s, when a fixed 30-year mortgage rate was at 18 percent.

• You need a 20 percent down payment. Conventional home loans may make this requirement, but there are other options. FHA loans require only 3.5 percent down. VA loans may be financed for up to 100 percent of the price. Lending institutions often have provisions for loans with a minimal amount down, say $1,000. The downside of a small down payment is that you may be required to buy private mortgage insurance.

• Prequalification means you have the loan. Going through a prequalification process determines how much mortgage you can afford by computing your income and liabilities, but it is not a binding agreement. The potential lender will look at additional documentation before you are fully approved.

• A 30-year mortgage is best. It’s the most popular option, but not the only one. A 15- or 20-year loan can save a lot in interest payments. An adjustable rate mortgage starts with a fixed rate then is adjusted according to market factors. That means your payment will fluctuate over time.

Don’t compare mortgage options based on their advertised rates, but look at their annual percentage rate, which lenders are required to advertise, along with mortgage interest rates. The APR includes estimated fees and other charges, giving you a more accurate picture of what you can expect.